Army, Air Force shift basis for bonus

Requests for proposals issued by the U.S. Army and the U.S. Air Force indicate both will tie agency compensation to performance.

The RFP for the Army's $130 million account coincided with the withdrawal of the Martin Agency, Richmond, Va., from the contest. Martin was one of three final competitors to be selected by the Army and its search consultant, Jones-Lundin Associates, Chicago.

Martin officials declined to detail the reason, but the result left the Army with Leo Burnett USA, Chicago, and Campbell-Ewald, Warren, Mich., as the remaining two participants. The account is now handled by Y&R Advertising, New York.

The Army has been following an unusual contracting process in which finalists were selected before the formal contract review began. But the Air Force is taking a more traditional approach, issuing a request for proposals open to all agencies.

QUALIFYING FOR BONUSES

Agency executives who have seen the Army's RFP said it includes a bonus based on agency performance. Details of how the bonus would be determined weren't available and Army officials didn't return phone calls at press time. The Air Force's RFP offers a contract that could run as long as seven years and includes a base fee and a supplemental bonus fee. The Air Force did not specify a dollar amount for the bonus, leaving agencies to propose a figure.

According to the Air Force contract, the amount of the bonus will be based on five factors. Recruiting success, retention and brand awareness each will account for 25%; program management is 20% and small-business contracting, 5%. The bonus is awarded twice a year.

The proposal would let the service contract for more than $50 million a year in advertising. But Air Force ad spending recently has been closer to $25 million to $30 million. Armed forces ad agencies generally produce a lot of work in unmeasured media.

Bozell Kamstra, Dallas, is in its fourth year of the current Air Force contract and will be among bidders for the new one. Government contracts are generally for a single year, with extensions possible for a total of five years.

FOLLOWING PRIVATE SECTOR

The idea that the government should follow private industry, compensating its ad agencies in part on how well they perform, arose last year in a joint report on Defense Department advertising prepared by Democratic media consultant Carter Eskew and Republican consultant Mike Murphy.

"We have been seeing the growth of incentive-based compensation linked to sales," said Hal Shoup, exec VP of the American Association of Advertising Agencies. "I take it that agencies like it because if they do well, they profit."

Some executives, however, warned that an ad agency's success in getting military recruits can depend on other factors, such as the strength of the economy and bonuses offered.

"There are so many variables, it can be a devilish kind of thing to pin down success," said Doug Laughlin, president of Laughlin Marinaccio & Owens, Arlington, Va., which handles the Army National Guard and Air Force National Guard.

BEYOND AGENCIES' CONTROL

"It's fair as long as there is a base fee that fairly compensates an agency and [the bonus] is on top. But on the other side, I would hate to be in a position to lose my fee if the economy was basically responsible for problems and it is something I have no control over."

Mr. Laughlin also questioned the Air Force's move to tie 25% of its bonus to retention.

"Retention is exceedingly difficult for the ad agency to influence," he said.

Controversy, meanwhile, continued over the Army's decision to restrict its account to ad agencies or consortiums of agencies with $350 million in billings--effectively excluding minority agencies as prime contractors. U.S. Rep. Caroline Kilpatrick (D., Mich.) wrote a letter to Defense Secretary William Cohen asking for specific commitments regarding the use of minority agencies.